Rate of return of 8.5% expected on airport bids07/08/2015
The Brazilian Ministry of Finance has updated its criteria for the Internal Rate of Return (IRR) for the investor for the upcoming airport bidding rounds. With the updates, the real projected IRR for these bidding rounds has moved up from 6.63% per year (as was used in previous rounds) to 8.5% per year.
The Federal Government will, naturally, use this new IRR as a base for defining the minimum concession sum (the amount to be paid by the successful bidder to the government). The Government is planning to provide concessions for the airports serving Porto Alegre (RS), Florianópolis (SC), Fortaleza (CE) and Salvador (BA) next year. The consortium or company presenting the highest bid will be awarded the concession.
The Ministry of Finance has stated that the published value of the IRR does not correspond to the effective rate of return on investment. This will depend upon the calculations of each investor, which involve factors such as financing conditions, for example.
According to the Ministry, the calculation was arrived at considering the same methodology already used in previous concession processes. There are four criteria used for the updating, three of which involve risk rates. Over the past few days, the Ministry also published updates on the IRRs for the forthcoming highway concessions (which saw a rise from 7.2% to 9.2%) and for port terminals (from 8% to 10%).
Recently, the Ministry of Finance’s Secretary for Economic Monitoring, Paulo Correa, confirmed that the rise in the rate for the highways sector, amongst other indicators, reflected an updating of risk indicators. When asked specifically about whether the new IRR reflects an increase in Brazil’s risk, he explained that this was just one of the criteria for an increase in the rate.
“The new IRR value is a result of the updating of four criteria”, he said. “The country risk rate is just one of them. None of them have therefore established the new rate on their own.”